CHAPTER 6 : ECONOMIC DEVELOPMENT AND DIPLOMATIC RELATIONS WITH TAIWAN AND CHINA IN OCEANIA
Pei-yi Guo (Academia Sinica)
Cheng-Cheng Li (University of Hawaii)
Sra Manpo Ciwidian (University of Hawaii)
Abstract
Over the past two decades, China has significantly increased its political and economic influence in the Pacific through loans, aid and other aspects of economic engagement. Its activities have drawn much attention from researchers and officials who promote the narrative of “China as an alternative” to the traditional powers in the region. Taiwan’s engagement, on the other hand, has received relatively little attention. This chapter examines the implications of diplomatic relations with either Taiwan or China and how they affect economic development in the island countries in Oceania. We assess economic and trade data over the past two decades and compare economic performances. Analysis using the Difference-in-Differences method shows that siding with Taiwan is an economically reasonable choice for small island states that rely heavily on fisheries. Larger countries whose revenue relies on resource extraction depend on China as an export destination and are thus more vulnerable to political pressure from Beijing. We argue that diversified import and export markets are a key requirement for countries attempting to resist pressure and preserve their independence of action. Taiwan and its partners should adopt a diplomatic approach with an Oceania-centered perspective, taking account of the region’s vision of sustainable development and its focus on the impact of climate change.
Of the remaining states that officially recognize Taiwan (14 as of 2022), four of them are Pacific islands countries: the Marshall Islands, Nauru, Palau and Tuvalu. Two others, the Solomon Islands and Kiribati, switched to Beijing in 2019. During tussles over diplomatic recognition in the Pacific, arguments are frequently made that establishing diplomatic ties with China enhances economic development because of the country’s vast economic clout. However, there has been no systematic research on the real-world impact of such changes.
This chapter examines the impact of the diplomatic choice between Beijing and Taipei on economic development across Oceania. The countries are far from homogeneous. They vary in size, natural resources and sub-region. Some scholars have used the MIRAB model to assess these economies, focusing on migration (MI), remittances (R), foreign aid (A) and public bureaucracy (B) (Bertram, 1999). However, such a system cannot be applied to the region as a whole. We decided to study twelve countries from the three sub-regions to allow for geographical variations. Economic engagement by Taiwan and China follows very different paths. Taiwan’s has limited trade and investment, except in fisheries and some 2 tourism, while China has mass volume in exports and imports, and pursues its Belt and Road Initiative. The BRI includes the involvement of state-owned companies in the mining industry and infrastructure. The initiative has been accused of causing huge debt burdens and exposing countries to financial risk. We have chosen to focus on developments in fisheries, resource extraction and tourism.
Introduction
